Today’s Law Review is geared to builders. The California Civil Code requires owners to pay general contractors and general contractors to pay subcontractors promptly or face severe consequences.

Many builders have no clue about these useful so-called prompt payment codes.

Owner Must Pay General Contractor

Under Civil Code Section 8800, an owner must pay the general contractor within 30 days after demand for payment from the general unless the construction contract provides otherwise.

However, if there is a “good faith dispute” as to a progress payment due, the owner may withhold 150% of the disputed amount.

The penalty for violating this code is that interest accrues at 2% per month on the amount wrongfully withheld, and in a lawsuit the prevailing party (the winner) may recover reasonable attorney’s fees.

This section does not apply to public contracts, which is covered in another code.

Owner’s Retention Payments

An owner must pay any retention to the general contractor within 45 days of completion of the work. This code is also subject to the good faith dispute exception, 2% interest and prevailing party attorney’s fees.

General Pays Subs

A general must pay subcontractors for work done within seven days after being paid by the owner unless the construction contract states otherwise.

The exception is that the general may withhold 150% of any “good faith dispute” amount. Failure to comply accrues interest for the sub at 2% per month and allows the winning party to be reimbursed for his or her attorney’s fees.

A general must pay any retention to subs within 10 days after receiving payment from the owner. Again, this requirement is subject to the right to withhold 150% of any disputed amount, 2% interest accrual per month, and prevailing party’s attorney’s fees reimbursement.

Real Teeth

These codes requiring timely payments from owners to general contractors and from general contractors to subcontractors have real teeth. The right to accrue 2% per month interest adds up quickly.

And, the right to have your attorney’s fees reimbursed if you win any lawsuit over these laws, even if there is no attorney’s fees clause in the construction contract, is huge. All the more reason to timely pay for work done on construction projects.

Jim Porter is an attorney with Porter Simon licensed in California and Nevada, with offices in Truckee, Tahoe City and Reno, Nevada. Jim’s practice areas include: development, construction, business, HOAs, contracts, personal injury, accidents, mediation and other transactional matters. He may be reached at porter@portersimon.com or http://www.portersimon.com.